Dotcom to Unveil Megaupload Successor Amid U.S. Claims

By Joe Schneider -
Jan 16, 2013

Kim Dotcom, whose Megaupload.com
website accounted for 4 percent of world Internet traffic before
being shut down last year on U.S. copyright infringement
charges, plans to unveil a new, encrypted file-sharing site in
New Zealand in a snub to U.S. authorities.

Dotcom has scheduled a news conference on Jan. 20 at his
NZ$30 million ($25 million) rented home in an Auckland suburb,
promising to introduce a way to securely store and transfer
confidential information.

“It is a little bit provocative,” Charles Alexander, a
partner at Minter Ellison in Sydney, specializing in
intellectual property law, said in a phone interview. “The U.S.
may redouble their efforts to extradite him.”

The U.S. Department of Justice is seeking Dotcom’s
extradition from New Zealand to face racketeering, money
laundering and copyright-infringement charges. Prosecutors say
his Megaupload site generated more than $175 million in criminal
proceeds from the exchange of pirated films, music, book and
software files. Dotcom, who has denied any wrongdoing, faces as
long as 20 years in prison if convicted.

Peter Carr, spokesman for U.S. Attorney Neil H. MacBride,
referred Bloomberg News to a statement Dotcom made in February
to a New Zealand court, when he pledged not to resurrect the
Megaupload site. Carr declined to comment further.

Secure Files

The German-born Dotcom, 38, who changed his name legally
from Kim Schmitz, has suggested in postings on his personal
website that his encryption will ensure the security of files in
cloud storage and prevent governments from seeing any content.

A screenshot of the new Mega site shows an encryption
generator, known as a 2048-bit RSA public/private key, that
creates a unique alpha-numeric code used to unlock a file or a
message. According to DigiCert Inc., the Lindon, Utah-based
provider of Internet Security Certificates, cracking a 2048-bit
RSA SSL code using a standard desktop computer would take
500,000 times longer than the age of the universe, which is
about 13 billion years old.

The new site promises to allow users to encrypt and decrypt
data in their Internet browser during uploads and downloads.

“I had a cool dream,” Dotcom wrote on Twitter Jan. 1.
“All nations that are being spied on by the US govt started
using #Mega & I won the Nobel Encryption Prize.”

Helicopter Raid

The U.S. government sought court approval in June 2010 to
search Megaupload’s servers at Carpathia Hosting Inc. in
Virginia, citing the existence of 39 infringing copies of
copyrighted motion pictures. In January 2011, the U.S. courts
issued warrants for Dotcom’s arrest and the seizure of the
websites.

New Zealand police, cooperating with U.S. authorities,
raided Dotcom’s rented mansion that month, using two helicopters
and 27 officers, some armed with assault rifles and gas
canisters.

Officers seized 18 luxury vehicles at his home, including a
1959 pink Cadillac, while Megaupload sites were shut down
worldwide and his banks accounts were frozen in Hong Kong.
Dotcom spent four weeks in jail before winning his release on
bail.

Dotcom had filed a statement with the court before his
release, pledging not to revive the file-sharing website.

“I can assure the court that I have no intention and there
is no risk of my reactivating the Megaupload.com website or
establishing a similar Internet-based business during the period
until the resolution of the extradition proceedings,” Dotcom
said in a Feb. 15 affidavit.

Lawful Business

Neither Dotcom’s bail conditions nor U.S. law precludes him
from engaging in a lawful business, according to his lawyer Ira Rothken. The court was informed of the new website and no legal
objections were raised, Rothken said.

The new site may antagonize U.S. prosecutors, Alexander
said, although it won’t likely affect the extradition hearing.

“That’ll be for a New Zealand court to decide,” Alexander
said. “This isn’t a matter for U.S. courts.”

Megaupload.com advertised that it had more than 1 billion
visits to the site, more than 150 million registered users and
50 million daily visitors. U.S. prosecutors, in court filings,
said the site accounted for 4 percent of Internet traffic.

“Megaupload’s and the rest of the defendants’ earnings
were from businesses providing lawful cloud storage services and
not from criminal copyright infringement,” Dotcom said in a
posting on his website.

Hearing Postponed

The extradition hearing in Auckland was postponed last
month from March to August. New Zealand High Court Justice Helen
Winkelmann ruled on June 28 that warrants police used to search
Dotcom’s home, ahead of his arrest, were overly broad and
invalid. In December, Winkelmann granted Dotcom permission to
sue New Zealand’s spy agency for intercepting his
communications.

Megaupload is challenging the validity of the warrants that
were used to search the Virginia servers, saying files were left
there because the U.S. government told the company not to do
anything to alert anyone of its investigation into the copyright
infringement. U.S. District Judge Liam O’Grady hasn’t ruled on
that challenge.

The file-sharing company’s challenge is “based on
unfounded assertions regarding imagined violations of its
rights,” MacBride, the prosecutor, wrote in a court filing last
week. “Megaupload does not cite a single communication between
the government and Megaupload or a single instruction from any
member of the government to Megaupload; there are none.”

Criminal Behavior

The U.S. filing shows the government’s attempt to link
Dotcom and Megaupload with criminal behavior, Adrian Lawrence, a
partner at Baker & McKenzie in Sydney who advises on
intellectual property and information technology, said in a
phone interview.

“The closer you are connected with that content, the more
likely it is that you will be held responsible,” he said.

The U.S. Supreme Court in 2005, in Metro-Goldwyn-Mayer
Studios Inc. v. Grokster Ltd., held unanimously that file-
sharing networks can be held liable for copyright infringement
if they take “affirmative steps” to encourage breaking the
rules.

Dotcom has to determine if what he’s doing is legal in the
country he’s operating from, Lawrence said.

International Borders

New Zealand’s copyright law indemnifies Internet service
providers from liability if users infringe copyrights. Merely
because a person uses the Internet and infringes a copyright the
service provider “must not be taken to have authorized” the
infringement, according to the law.

“The U.S. imposes its laws further than its boundaries,”
Lawrence said.

MacBride has said international borders won’t stop him from
pursuing lawbreakers.

“I’m convinced that most e-mails in the world at some
point transit through servers that sit somewhere in the Eastern
District of Virginia,” MacBride said. “That gives us venue.”

The New Zealand case is Between Kim Dotcom and Attorney
General. CIV2012-404-001928. High Court of New Zealand
(Auckland). The U.S. case is: USA v. Dotcom. 12-cr-00003. U.S.
District Court for the Eastern District of Virginia
(Alexandria).